SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15D OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ( ) to ( )
Commission File No. 0-8955
THE CHERRY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2977756
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
3600 Sunset Avenue, Waukegan, IL 60087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 662-9200
Not Applicable
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such report), and (2)
has been subject to such filing requirements for the past 90 days.
( X ) Yes ( ) No
Number of Common Shares outstanding as of May 31, 1997:
7,679,620 shares of Class A Common
4,762,564 shares of Class B Common
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<CAPTION>
May 31, February 28,
1997 1997
(Unaudited) (Note 1)
----------- --------
<S> <C> <C>
ASSETS:
Cash and equivalents $ 5,385 $ 6,215
Receivables, net of allowances 57,508 57,118
Inventories (Note 2) 53,920 54,786
Prepaid expenses and other current assets 8,176 6,734
--------- --------
Total Current Assets 124,989 124,853
Land, buildings and equipment, net 158,793 159,267
Investment in affiliates and other assets, net 11,958 11,526
--------- --------
TOTAL ASSETS $ 295,740 $295,646
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Short-term debt $ 23,454 $ 23,806
Accounts payable 17,982 17,803
Payroll related accruals 13,405 11,833
Other accruals 13,093 13,574
Income taxes, net 2,239 566
Current maturities of long-term debt 1,924 2,051
--------- --------
Total Current Liabilities 72,097 69,633
Long-term debt 29,528 37,009
Deferred income taxes, net and deferred credits 20,855 20,928
Stockholders' Equity:
Class A Common stock 7,680 7,667
Class B Common stock 4,762 4,750
Additional paid-in capital 42,021 41,858
Retained earnings 114,877 110,357
Cumulative translation adjustments 3,920 3,444
--------- --------
Total Stockholders' Equity 173,260 168,076
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 295,740 $295,646
========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Dollars in Thousands Except Share Data)
<CAPTION>
Three Months Ended
May 31,
--------------------
1998 1997
-------- ---------
<S> <C> <C>
Net Sales $ 114,535 $ 111,701
Cost of Products Sold 82,010 82,326
--------- ---------
Gross Profit 32,525 29,375
Engineering, Distribution and
Administrative Expenses 24,551 23,545
--------- ---------
Earnings from Operations 7,974 5,830
Other Income, Net 98 315
--------- ---------
Earnings Before Interest and Taxes 8,072 6,145
Interest Expense, Net 853 1,097
--------- ---------
Earnings before Income Taxes 7,219 5,048
Income Tax Provision 2,699 1,843
--------- ---------
Net Earnings $ 4,520 $ 3,205
========= =========
Earnings per Share $ .36 $ .26
========= =========
Average Shares Outstanding 12,429,122 12,338,837
========== ==========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
<TABLE>
THE CHERRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<CAPTION>
Three Months Ended May 31,
--------------------------
1997 1996
---------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities $ 14,249 $ 10,353
Cash Flows from Investing Activities:
Expenditures for Land, Buildings and Equipment (7,287) (10,474)
Other, net (20) 11
--------- ---------
Net Cash Used by Investing Activities (7,307) (10,463)
--------- ---------
Cash Flows From Financing Activities:
(Decrease) in Short-term Debt (352) (1,848)
Increase(Decrease) in Domestic Revolver and
Uncommitted Credit Facilities (7,000) 1,000
Principal Payments on Long-term Debt (608) (691)
Equity and Other Transactions 188 60
--------- ---------
Net Cash (Used) Provided by Financing Activities (7,772) (1,479)
--------- ---------
Effect of Exchange Rate Changes on Cash Flows -- 100
--------- ---------
Net (Decrease) Increase in Cash and Equivalents (830) (1,489)
Cash and Equivalents, at Beginning of Year 6,215 4,213
--------- ---------
Cash and Equivalents, at End of Period $ 5,385 $ 2,724
========= =========
<FN>
The accompanying notes are in integral part of the consolidated financial
statements.
</TABLE>
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of May 31, 1997, and the
condensed consolidated statements of earnings and the condensed consolidated
statements of cash flows for the three months ended May 31, 1997 and 1996, have
been prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
May 31, 1997, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's February 28, 1997 Annual
Report to Stockholders. The results of operations for the three months ended
May 31, 1997 are not necessarily indicative of the operating results for a full
year.
2. INVENTORIES
Inventory values were as follows:
May 31, February 28,
1997 1997
--------- ---------
Finished Goods $ 13,262 $ 14,506
Work-in-Process 19,482 19,121
Component Parts 10,342 10,244
Raw Materials 10,834 10,915
--------- --------
$ 53,920 $ 54,786
========= ========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
The company achieved new sales and net earnings records for any first quarter.
Sales and net earnings for the first quarter of fiscal 1998 were $114.5 million
and $4.5 million, respectively. Net earnings increased 41.0 percent over the
prior year's first quarter on a comparable period increase in sales of 2.5
percent. Sales by domestic operations increased 10.5 percent with the company's
semiconductor operation reporting an 18.6 percent increase. Although sales by
foreign operations were 2.5 percent higher in local currency, primarily German
Marks, they were $5.3 million lower when translated into current U.S. dollars,
resulting in a decline of 9.5 percent. The first quarter sales record was
achieved despite the negative impact from foreign currency translation noted
above and various strikes at one of our U.S. automotive customers. These
strikes resulted in approximately $1.2 million of lower sales than expected for
the first quarter of the current year. The first quarter of the prior year also
had lower sales of approximately $1.0 million due to a labor strike at General
Motors. It is anticipated, due to the current general automotive market
conditions, that the delayed first quarter sales noted above may not be
recovered in subsequent quarters of the current year.
The consolidated operating profit margin for the first quarter of the current
year increased to 7.0 percent of sales from 5.2 percent for the comparable
period of the prior year. Consolidated gross margin increased to 28.4 percent
of sales for the current year first quarter versus 26.3 percent for the
comparable quarter of the prior year. Operating expenses for the first quarter
of the current year increased slightly to 21.4 percent of sales from 21.1
percent in the prior year. The increase is attributable to higher engineering
expense at our domestic operations, primarily for personnel and related expenses
on research and new product development activities. Increased sales volume,
particularly at the company's semiconductor operation, as well as continued
improvements in manufacturing efficiency resulted in the improved margins noted
above.
Consolidated net interest expense for the first quarter of $853 thousand
decreased 22.2 percent over the comparable period of the prior year primarily as
a result of lower debt levels.
Other income of $98 thousand for the current year first quarter declined $217
thousand from the comparable quarter of the prior year. The decline resulted
primarily from lower customer tooling and joint venture income.
The consolidated effective income tax rate is 37.4 percent for the current year
versus 36.5 percent for the comparable period of the prior year. The income tax
rate for the current year is higher primarily because of higher state taxes
combined with lower foreign tax credits.
The company normally experience a seasonal slowdown in orders and sales in the
second quarter. This traditionally results from customer plant shutdowns for
model changeovers in the automotive and appliance markets and from summer
vacations.
Since a significant portion of the Company's sales and manufacturing are
overseas, foreign currency translation could have an impact on future sales,
earnings, and financial position of the Company as denominated in U.S. dollars.
The Company selectively enters into forward contracts to hedge certain firm and
anticipated purchase commitments denominated in foreign currencies (primarily
German Marks). At May 31, 1997, the U.S. dollar equivalent of forward contracts
outstanding approximated $7.1 million.
Liquidity and Capital Resources
As of May 31, 1997, the consolidated debt to capital ratio decreased to 24.1
percent from 27.2 percent at February 28, 1997.
Consolidated operations generated $14.3 million in cash for the first quarter
ended May 31, 1997. Miscellaneous equity and other transactions provided an
additional $200 thousand in cash.
Of the funds generated above, $7.3 million was invested in buildings and
equipment, with $4.1 million for domestic operations and $3.2 million for
foreign locations. The Company also repaid $7.0 million under the domestic
revolver, $400 thousand of short-term debt and $600 thousand of other long term
debt.
As a result of the above, cash at May 31, 1997 was reduced to a balance of $5.4
million from $6.2 million at February 28, 1997.
Capital expenditures are expected to continue at a moderate level of
approximately 8 percent to 10 percent of sales. The capital expenditure rate
may be revised further as sales growth estimates are updated. Operations are
expected to generate enough cash to fund capital expenditures and still maintain
an acceptable debt to capital ratio. Existing credit facilities and bank lines
should be sufficient, together with internally generated cash, to finance the
Company's operations.
<PAGE>
THE CHERRY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number Description of Exhibit
-------------- ---------------------------------
27 Article 5 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter no Form 8-K reports were filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE CHERRY CORPORATION
(Registrant)
DATE: July 3, 1997 By:/s/Dan A. King
-----------------------
Dan A. King
V.P. of Finance, Secretary
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of income and condensed consolidated balance
sheet and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 5,385
<SECURITIES> 0
<RECEIVABLES> 57,508
<ALLOWANCES> 0
<INVENTORY> 53,920
<CURRENT-ASSETS> 124,989
<PP&E> 361,979
<DEPRECIATION> 203,186
<TOTAL-ASSETS> 295,740
<CURRENT-LIABILITIES> 72,097
<BONDS> 29,528
0
0
<COMMON> 12,442
<OTHER-SE> 160,818
<TOTAL-LIABILITY-AND-EQUITY> 295,740
<SALES> 114,535
<TOTAL-REVENUES> 114,535
<CGS> 82,010
<TOTAL-COSTS> 82,010
<OTHER-EXPENSES> 24,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 905
<INCOME-PRETAX> 7,219
<INCOME-TAX> 2,699
<INCOME-CONTINUING> 4,520
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,520
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
